Mythbusters DuPont Edition: The Legend of the Low Tax Rate

The following post was prepared by Elitsa Healy, DuPont resident and former community finance committee member. Healy is also serving on the Committee Against DuPont Prop 1. More of Elitsa’s analysis can be found atdupontlevyfacts.org

Many towns have one: an urban legend that is the talk of the town, providing entertainment at dinner parties, capturing the imagination over Starbucks lattes and collecting more vivid details through every round of conversation. Some towns have particularly electrifying urban legends, like sewer alligators in New York City. DuPont’s legend, on the other hand, staying true to the city’s suburban character, has to do with municipal finance: we boast the lowest city property tax rate in Pierce County.

Our low tax rate has become recurring rhetoric in the debate for supporting the proposed increase in the city property tax levy. Thus, as fond as I am of the marketing power of the low property tax rate slogan, it is time to examine the economic reality behind our low tax rate.

A brief lesson in municipal finance is in order here. Property tax rates, unlike income or sales tax rates, are not fixed percentages. Rather, they are determined by dividing (i) the dollar amount of taxes property owners are obligated to pay by (ii) the assessed value of their properties.

To illustrate: if your property tax bill is $300 and the assessed value of your property is $200,000, your property tax rate is $1.50 per $1,000 of assessed value ($300/($200,000/$1,000)). Now, let’s assume that the following year your property’s assessed value declines to $180,000. You might expect the property tax bill to decline to $270 ($1.50 x ($180,000/$1,000)). However, that is not the case. Your property tax bill will remain the same, at $300, but your property tax rate will increase to $1.67 ($300/($180,000/$1,000)). With this tax lesson in mind, let’s take a look at DuPont’s low tax rate and see how it translates into our tax burden, or the dollar amount of taxes each of us pays to the city.

The chart below compares property tax rates for Pierce County towns. The chart was prepared by city staff and was included in the materials provided to the Community Finance Committee (refer to page 4 of Budget Packet Materials, March 8, 2012). Clearly DuPont has the lowest city property tax rate in Pierce County, a fact that has been referred to by city officials and supporters of the proposed property tax levy on occasions too numerous to count.

However, keeping in mind that property tax rates are merely a function of property taxes and assessed values, let’s examine the property tax burden per capita for Pierce County towns. The chart below shows the dollar amount of city property taxes paid per capita, calculated based on the additional information compiled by city staff and provided to the Community Finance Committee (refer to page 8 of Budget Packet Materials March 8, 2012).

At $239 per capita, the dollar amount of taxes DuPont citizens currently pay is not the lowest in Pierce County. The reason why our low tax rate does not translate into the lowest tax burden is our relatively high assessed value per capita (refer to tabulation below). For the same reason, Gig Harbor’s seemingly middle of the pack $3.16 tax rate translates into the highest property tax burden per capita of $765; Gig Harbor has the highest assessed value per capita. The chart above also illustrates how DuPont will rank among the towns if the new levy is approved; with a new property tax burden of $379 per capita, we will just miss meddling in the county tax Olympics.

Moreover, it is worth noting that 90 percent of homeowners in DuPont pay additional annual dues to Northwest Landing Resident Owners Association (ROA). The ROA dues translate into an annual per capita payment of $124 (2,700 homes x $387 annual dues / 8,430 total population). From an economic perspective, the ROA dues are simply another form of property tax; they are levied on homeowners and used to provide services such as upkeep of common greenways and parks and recreation activities. ROA services importantly provide some relief to the city on such responsibilities.

So, next time you hear or read about DuPont’s low tax rate, keep in mind that property tax rates are not a good basis for comparing the amount of taxes homeowners pay. A more accurate basis for comparison would be the tax burden, or dollar amount of taxes per capita.